Many, if not most, organizations have some kind of annual incentive plan. Unfortunately, a majority of them are not happy with it. Often, our phone rings when an organization can't take it anymore and wants help with its plan. When it does, we typically hear one or more of the following complaints:
- "Our bonus plan has become an entitlement--people just expect it."
- "Our incentive program isn't structured properly--we're paying out benefits when we aren't even profitable."
- "Our plan is completely discretionary. I go into the closet at the end of the year and try to determine how much of our profit to share, who should get a payout and how much they should receive. There's got to be a better way."
- "Our short-term incentive plan has become too complicated. We have too many metrics and people are confused."
- "Our employees don't understand what they need to do to maximize the payout from their plan--and then they complain about how much they get."
There's more, but you get the picture. The issues these business leaders articulate are symptomatic of three common mistakes companies make with their annual incentive plans: